FBT on a company car for small business owners. When private use triggers it, the two methods, which vehicles escape it, and what it means for finance.
Business Owners Hub
FBT · Company Car · Pty Ltd Owners
Own the company, drive the car, and you sit on both sides of the tax. Here is when FBT applies, how it is worked out and what it means for the way the car is financed.
Quick Answer
If you own a Pty Ltd and drive its car, you are both employer and employee, so the company generally owes FBT once that car is available for private use. Financing it through a chattel mortgage or a lease does not change that test.
Also called: car fringe benefits tax, company car tax.
What is FBT on a company car?
FBT on a company car is a tax the employer pays when a car it owns or leases is used, or is available, for private use by an employee or their associate. That private use is called a car fringe benefit, and the ATO sets out the test in How FBT applies to cars.
For a small company the usual picture of FBT falls apart. The tax is normally explained as a cost a business carries for its staff. If you run a Pty Ltd and drive its car, you are the employer and employee in one arrangement: you decide the company provides the car, you use it, and the company carries the tax.
The finance does not move this test. The ATO says it does not matter if the car is owned or leased, so a chattel mortgage in the company's name and a lease start from the same question. Choosing between them is covered in our chattel mortgage, lease and hire purchase guide. The lender's question is separate again. What lenders actually look at first is the borrower and the deal, and FBT sits behind that as a cost the company has to fund.
Does FBT apply to a director who owns the company?
FBT applies to a director who owns the company, because the ATO counts a director of a company as an employee for FBT. Owning the shares does not take you outside that. The employer pays FBT, and in a Pty Ltd the employer is the company.
The company also carries the paperwork. The ATO says a company or trust that provides fringe benefits must lodge an FBT return, pay any FBT that applies and keep records of how the taxable value was calculated. The FBT year runs 1 April to 31 March. If last year's liability was $3,000 or more, FBT is paid by instalments.
The benefit can also reach your own income statement. Reportable fringe benefits apply where the taxable value is more than $2,000 in the FBT year. The ATO says the reported amount is not part of assessable income, but it counts in income tests (ATO, Reportable fringe benefits, updated 12 January 2023, read 4 November 2026).
Sources: ATO, How fringe benefits tax works, updated 17 July 2024. ATO, Using your business money and assets for private purposes, updated 2 July 2026. ATO, FBT rates and thresholds, updated 20 May 2026. Read 4 November 2026.
What counts as private use of a company car?
Private use of a company car covers any time the car is available for private use, so it reaches further than the trips you actually take. That is the point most owners miss, because the test looks at availability as well as use. The ATO gives these examples:
- Garaging at home. If an employee garages a car at or near home, even if only for security, it is considered available for private use, whether or not they have permission.
- Work stops on the commute. Stopping to do work on the way between home and work is still private use.
Business use itself does not trigger FBT, so the question is what the car is available for outside work. For an owner who takes the car home each night, the car is likely to be available for private use on most days of the year. That count feeds straight into the formula below. Practice owners have their own version of this question, which we cover in our post on car finance for doctors.
Source: ATO, How FBT applies to cars, updated 13 January 2025. Read 4 November 2026.
How is FBT on a car worked out?
FBT on a car is worked out in three moves: find the taxable value, gross it up, then apply the FBT rate. For the FBT year ending 31 March 2027 the ATO publishes an FBT rate of 47%, a Type 1 gross-up of 2.0802 where a GST credit is available, and a Type 2 gross-up of 1.8868.
What goes into the statutory formula?
The statutory formula is (A x B x C / D) - E. Each letter stands for one input:
- A, base value. The cost price excluding registration and stamp duty, after any trade-in or cash payment by the employee, plus non-business accessories, dealer delivery, GST and luxury car tax. If the employer has held the car for four years at the start of the FBT year, base value is reduced by one-third, once only. A trade-in by the business itself is a question for your accountant.
- B, statutory rate. 20%.
- C, days. The days the car was available for private use.
- D, FBT year. The days in the FBT year.
- E, employee contribution. The amount the employee contributes.
| Step | Example figure | How it gets there |
|---|---|---|
| Base value | $60,000 | Invented car, used only for this example |
| Statutory rate | 20% | ATO statutory rate |
| Taxable value | $12,000 | $60,000 x 20%, available all year, no employee contribution |
| Gross-up | $24,962.40 | $12,000 x 2.0802, GST credit claimed |
| FBT rate | 47% | FBT year ending 31 March 2027 |
| FBT payable | About $11,732 | $24,962.40 x 47% |
Sources: ATO, FBT rates and thresholds, updated 20 May 2026. ATO, Taxable value of a car fringe benefit, updated 6 March 2025. ATO, FBT return 2026, item 23, published 1 April 2026. Read 4 November 2026.
This is arithmetic on an invented car using ATO published rates, not advice, and your own figure will differ. FBT a company pays is generally tax deductible, and your accountant can confirm how that applies.
Statutory formula or operating cost: which method fits?
The statutory formula fits where records are thin, and the operating cost method is the alternative where the records exist. The operating cost method needs logbook and odometer records, and without them you must use the statutory formula. You can use either method for any car, regardless of the method used before.
The ATO's statutory rate is flat regardless of distance travelled, so the statutory formula gives no credit for a car that mostly does business kilometres. That is the case where running both methods is worth the effort, and your accountant can do that comparison on your own records.
Sources: ATO, Taxable value of a car fringe benefit, updated 6 March 2025. ATO, FBT rates and thresholds, updated 20 May 2026. Read 4 November 2026.
Which vehicles are exempt from FBT?
No FBT applies if an employee uses an eligible vehicle and private use is limited, so the exemption needs two tests to pass: the vehicle and the use.
Which vehicles count as eligible?
Eligible vehicles include a single cab ute, a panel or goods van, and a dual cab ute designed to carry a load of 1 tonne or more, or more than 8 passengers, or under 1 tonne but not designed for the principal purpose of carrying passengers. The ATO list also covers a taxi, a 4WD or other road vehicle designed to carry 1 tonne or more or more than 8 passengers, and some permanently modified vehicles such as a hearse.
What use stays exempt?
Exempt use is limited to travel between home and work, travel incidental to travel in the course of employment duties, and non-work use that is minor, infrequent and irregular. You must be able to demonstrate it. The way a lender classes a vehicle is a separate question, covered in our post on commercial vehicle finance for utes, vans and trucks.
Source: ATO, Exempt use of eligible vehicles, updated 12 January 2023. Read 4 November 2026.
What if the company car is electric?
An electric company car may fall under the ATO's electric cars exemption, although a phased change has been announced and is not yet law, as at 4 November 2026. The exemption is for private use by a current employee or their associates. Conditions include that luxury car tax has never been payable on the car. From 1 April 2025 a plug-in hybrid is not a zero or low emissions vehicle, with limited transitional exceptions.
On 5 May 2026, ahead of the Federal Budget, the Government announced this phased change. A bill to make the change is before Parliament:
- Until the end of March 2027. The discount continues in full.
- Between 1 April 2027 and 1 April 2029. Electric cars costing $75,000 or less stay at the full discount. Those over $75,000 and below the luxury car tax threshold move to a 25% discount.
- From 1 April 2029. All electric cars below the luxury car tax threshold get the 25% discount.
The announcement says existing leases won't be impacted. For a company, that makes the timing and price of the car part of the structure decision, because a director counts as an employee for FBT. A sole trader sits in a different position, which we cover in novated leases for sole traders. The loan side is in our electric car finance post.
Sources: ATO, Electric cars exemption, updated 1 April 2026. ATO, Electric car discount: more sustainable FBT treatment of electric cars, updated 3 November 2026. Read 4 November 2026.
Should the car sit in the company or with you personally?
Whether the car sits in the company or with you personally has no single answer, because it depends on who uses the car, which entity earns the income and how your company structure is set up. Held in the company, the car can bring FBT on any private use. Held personally, it is no longer an employer's car, but the finance and the running costs sit with you, and any business use has to be worked through with your accountant. Depreciation is covered in our vehicle depreciation schedule.
There is one trap to raise early. If a private company provides a vehicle to a shareholder or their associate who is not in their role as an employee, the ATO may treat it as a dividend or loan, and the related expenses may not be deductible. That sits under Division 7A. The ATO also says its page on using business money and assets is under review after the High Court decision in the Bendel case, so ask your accountant for the current position.
On the finance side, what lenders actually look at first is which entity borrows and what income that entity shows. The sole trader and company comparison is in our vehicle finance structure post, and our chattel mortgage guide covers the product itself. A company borrower may also be asked for a director's guarantee, which varies by lender. More options for owners sit on the Business Owners Hub.
What is the most tax efficient way to have a company car?
The most tax efficient way to have a company car has no single answer, because the result turns on private use, records and who holds the car. Compare an eligible vehicle kept within the exempt use limits, a car with the FBT budgeted, and the car held personally, then run those options on your own numbers with your accountant.
Source: ATO, Motor vehicles used by shareholders, updated 20 June 2024. Read 4 November 2026.
FBT on a company car asks the owner of a small company to think as both employer and employee. A director counts as an employee, the company pays, and the test looks at when the car is available for private use. The statutory formula, the operating cost method, exempt vehicles and the announced electric car change all decide the size of the bill, and taking out a loan does not switch FBT off.
Key takeaway: settle who uses the car and who should own it with your accountant before the finance goes in, because FBT follows private use and not the loan.Frequently Asked Questions
The FBT on a company car is paid by the employer, which means the company and not the driver. A director counts as an employee for FBT, so an owner-run Pty Ltd still lodges the FBT return and pays any FBT that applies. See the FBT glossary entry for the wider definition.
Legitimately reducing FBT on a company car comes down to how the car is used, recorded and funded. An eligible vehicle kept within the exempt use limits attracts no FBT, an employee contribution reduces the taxable value, and logbook records open up the operating cost method. Your accountant can test which of these fits your car.
The FBT on a car depends on its base value, the days it was available for private use, the gross-up and the FBT rate, so there is no flat amount. As an example only, a car with a $60,000 base value, available all year with no employee contribution and a GST credit claimed, works out at about $11,732 for the FBT year ending 31 March 2027. That is arithmetic on an invented car using ATO published rates, not advice. Our business vehicle finance guide sets this alongside GST.
FBT exemption for a vehicle turns on its type and how it is used, not on a model name. Eligible vehicles include a single cab ute, a panel or goods van and some dual cab utes, and private use must stay within the ATO limits. Our post on business or personal loans for a ute covers the finance side.
An FBT calculator for a company car is published by the ATO, and its FBT car calculator helps employers work out the taxable value and FBT payable under either method. Check that the rates it uses match the FBT year you are working on, and whether a GST credit is available on the car.
FBAA Accredited
